Regulators in U.S., U.K. eye private equity

Apparent U.S. focus on Hertz deal as company plans rich IPO

GregMorcroft

NEW YORK (MarketWatch) -- American and U.K. regulators are looking into their oversight roles in the exploding private-equity market, and the U.S. Department of Justice is reported to be looking particularly closely at the purchase of former Ford unit Hertz.

The moves by regulators come just a week before Hertz is set to take itself public in one of the year's richest deals.

The U.S. Department of Justice has added Merrill Lynch & Co's
MER, -1.13%
private-equity arm to its informal inquiry into the private-equity world, in a move that suggests the Hertz Global Holdings Corp. auction is being looked at, according to a report in The Wall Street Journal. The report cited people familiar with the matter.

And, in a separate announcement Monday morning, Britain's Financial Services Authority (FSA) said it's studying whether it needs to more closely regulate the private-equity market. It will add private-equity supervisory responsibilities to a unit that already monitors hedge funds.

Besides Merrill, at least four other buyout groups have received letters from the U.S. Justice Department over the past weeks: Carlyle Group; Clayton, Dubilier & Rice; Kohlberg Kravis Roberts & Co., and Silver Lake Partners, the Journal reported.

Since news of the probe emerged, people involved in the private-equity deals say the shops are being very careful in their conversations, often bringing in extra lawyers to oversee their dealings, the report added.

The Journal reported that the government is looking at the relationships among private-equity firms when they team up to make a purchase, like several did when they bought Hertz from Ford about a year ago for $15 billion.

In a prepared statement Monday, Hector Sants, managing director of wholesale markets and institutions at the U.K.'s FSA said: "The growing movement of capital from the public to the private-equity market over the last few years poses challenges, not just for the FSA, but for all regulators charged with oversight of international capital markets."

The FSA will establish an alternative investments center of expertise in the U.K. by integrating private-equity firms and supervision staff into the existing hedge-fund managers' supervision team, the regulator added.

The FSA's concerns appear to be different than the Department of Justice's, according to a 102-page document published on Monday.

Hertz Global Holdings is on the IPO calendar for the week of Nov. 13 as one of the richest deals of the year. The car rental firm plans to offer 88.24 million shares at $16 to $18 a share with underwriters Goldman Sachs and Lehman Brothers and Merrill Lynch.

Under terms of the IPO, Hertz will pay a special dividend of $427 million to its private equity shareholders.

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